Novelty ice cream maker Dippin' Dots is running out of cash and needs a $2 million credit line to be able to pay its bills, according to court documents filed Tuesday.
The company is running out of money because the bank that had been its main source of funding is refusing to loan Dippin' Dots more money until CEO Curt Jones is ousted. Alabama-based Regions Bank says it wants a judge to appoint a third-party trustee to run the company instead of Jones.
Jones, in a filing Tuesday, said Fischer Ventures LLC of Edmond, Okla., has offered to finance the company provided it gets first priority on any money Dippin' Dots makes until the loan is paid off. The money is needed to keep the company afloat until the warm-weather season that is peak for selling the beaded ice cream, Jones said.
Regions Bank said Jones, the Brentwood, Tenn., creator of the ice cream, is acting in his own interest and not that of the company or the creditors waiting to recoup debts owed by Dippin' Dots.
Regions is the largest creditor of Paducah, Ky.-based Dippin' Dots, having loaned the company $10.8 million before November's bankruptcy protection filing in federal court in Kentucky. It also loaned Dippin' Dots another $200,000 to keep the company operating after the filing. Regions filed a motion in federal bankruptcy court asking Judge Thomas H. Fulton to remove Jones as the decision maker for Dippin' Dots.
"This approach will save enterprise value and jobs," said Brian H. Meldrum, an attorney for Regions. "The only other alternative is liquidation, which serves nobody."
Fulton set a hearing for Wednesday in Louisville on the request by Regions.
In filings Tuesday afternoon, Dippin' Dots said that Regions Bank's request is unnecessary and that Jones is acting in the best interest of the company while looking for investors or buyers. Dippin' Dots attorney Todd Farmer said the company plans to file a reorganization plan this week that, if approved, would result in creditors being repaid in full within 36 months.
"It is now only when Mr. Jones will not pursue sale opportunities that he does not believe is in the company's long-term best interest, that Regions alleges that Mr. Jones is exercising undue influence," Farmer wrote.
Dippin' Dots filed for court protection in November as it sought to reorganize assets and debts rather than face foreclosure on more than $11 million in loans. The company asked Fulton to allow it to use cash collateral to continue operations while the case plays out. The company said in a filing that allowing it to use the cash collateral and stay functioning will not harm creditors, including its largest single creditor, Regions Bank.
Dippin' Dots, which sells cryogenically frozen beads of ice cream and bills itself as the "Ice Cream of the Future," markets itself to stores, as well as a number of amusement parks, theaters and malls.
In court filings, Regions said Dippin' Dots will be out of operating cash by the end of the month and working at a deficit. Jones' stake in other companies owed money by Dippin' Dots gives him a conflict of interest that cannot be resolved, Meldrum said.
Regions bank accused Jones of trying to "protect his own self-interest" by selling 51 percent of Dippin' Dots Franchising, which reaches agreements with vendors, for $250,000 to keep it from being sold by the bankruptcy court. Regions called the sale to Fischer Ventures a fraudulent attempt to keep the company away from creditors.
"Mr. Jones admitted he was aware that his transaction might be viewed as a 'fraudulent transfer' and indicated he discussed the issue with his attorneys," wrote J. Patrick Warfield, a lawyer for Regions in a letter to other attorneys involved with the bankruptcy. "When asked pointedly whether he undertook this transfer to defraud creditors, Mr. Jones refused to answer."
In the bankruptcy filing, the company listed about $20.2 million in assets and more than $12 million in liabilities. Dippin' Dots listed $27.7 million in income through September, $26.7 million in income in 2010 and $33.8 million in 2009.
Jones, a microbiology graduate of Southern Illinois University in Carbondale, created the ice cream beads in 1988. After having to sell a car and raid savings to keep going, he grew the business to nearly 2,000 locations across the country, from mall kiosks to amusement parks and stadiums. The ice cream is stored at 40 degrees below zero and sold at 20 below zero.
Jones resumed daily control of the company in 2009, with the aim of restructuring it to maintain profits even if sales dropped. In making the move, Jones dismissed President Tom Leonard and Operations Vice President Dominic Fontana. Leonard had run luggage maker Samsonite before joining the company.